July 23 (Bloomberg) -- Colombia’s central bank kept its
benchmark interest rate unchanged at a record low for a third
month as policy makers bet that a rebound in economic growth is
unlikely to spur excessive inflation.

The seven-member board maintained the interbank rate at 3
percent, matching the forecasts of all 27 economists surveyed by
Bloomberg. Today’s meeting was the last that included Finance
Minister Oscar Ivan Zuluaga, who stands down when President
Alvaro Uribe’s term ends Aug. 7.

The bank also raised its economic growth forecast for the
year by 1.5 percentage points to a range of 3.5 percent to 5.5
percent. Earlier this year, the government, which has separate
forecasts, had predicted growth of as little as 2.5 percent. As
output picks up, annual inflation remains tame, near the bottom
of the central bank’s 2 percent to 4 percent target.

“With inflation at such low levels and little prospect of
that changing, this was the easiest of decisions for the central
bank,” said Rupert Stebbings, head of the Colombian unit of
Chilean brokerage Celfin Capital SA. “Zuluaga’s last meeting as
a member will have been one of the most predictable.”

Annual inflation quickened to 2.25 percent in June. It may
end the year at 3.06 percent, down from 7.7 percent in 2008,
according to the average estimate of 46 economists in a central
bank survey published July 9. Prices rose 2 percent last year.

The Colombian peso has appreciated 9.4 percent this year,
the best performance against the dollar among 26 emerging market
currencies tracked by Bloomberg.

Faster Growth

“The information received in the last weeks indicate the
Colombian economy is growing at a faster rhythm than expected
without generating inflationary pressure,” central bank chief
Jose Dario Uribe told reporters in Bogota after the decision.

He added that consumer confidence has improved in recent
months, while exports have increased. Inflation will remain
within the bank’s target range this year and next, he said.

“Inflation and economic growth are totally under
control,” said Camila Estrada, head analyst at Helm Bank SA in
Bogota. “There may be some increases in food prices because of
the huge amounts of winter rain, but we will have to see how
that plays out.”

Still, the International Monetary Fund predicts Colombia’s
recovery from its first recession in a decade will lag behind
its South American neighbors. The IMF forecasts growth of 2.25
percent this year, slower than all other major regional
economies except Venezuela, which is in recession.

Inflation Outlook

“The recovery of activity does not present an immediate
challenge to the inflation outlook,” Alberto Ramos, an
economist at Goldman Sachs Group Inc., said in a report. “The
economy is still operating with some slack, wage pressures are
moderate, and inflation expectations are well anchored.”

Today’s board meeting was the last before Juan Manuel
Santos takes over as president from Alvaro Uribe, who spent
eight years in office. Santos has charged incoming Finance
Minister Juan Carlos Echeverry with stoking annual growth of 6
percent within two years and creating a fiscal stabilization
fund once debt levels are reduced.

Colombia’s growth is lagging other South American nations
in part because of a diplomatic dispute with Venezuela.
President Hugo Chavez yesterday cut ties with Colombia after
facing accusations he’s harboring as many as many 87 guerrilla
camps that are used to smuggle cocaine and launch terrorist
attacks across the border.

Rebel Camps

Colombia yesterday presented what it said was photographic
evidence at a special meeting of the Organization of American
States that leaders of the guerrilla group the Revolutionary
Armed Forces of Colombia are living freely over the border in
Venezuela.

“The demand driven inflation caused by Venezuela’s
inability to feed itself is a thing of the past and with
developments yesterday does not appear to be coming back anytime
soon,” Stebbings said.

Exports from South America’s fourth-biggest economy to
Venezuela declined 71 percent in the first five months of 2010
from the same period a year earlier. Before relations soured,
Venezuela was Colombia’s biggest export market after the U.S.

Bank chief Uribe said today that Colombia’s businesses
won’t see any additional impact from the spat with Venezuela.